Cutting the Deficit May Cut Your Home Tax Saving

With so much at stake, over the days and weeks ahead the CBS Evening News will be taking a closer look at the Tough Choices the country will be facing to reduce the debt and deficit. (Scroll down to vote your opinion on the issue)

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Our latest CBS News poll on issues facing the country finds an overwhelming 73 percent of Americans saying the deficit problem is very serious.

With Washington's attention focusing on new steps to reduce the annual federal budget deficit and government debt, CBS News correspondent Bianca Solorzano reports one idea is to target the tax deduction for home mortgage interest. Currently, 75 million Americans are eligible to deduct the interest paid on their home mortgage from what they owe the government at tax time. Those who do save an average of $2,078 per year.

CBS Evening News Series: "Tough Choices"

The Challenge: To cut the amount the U.S. treasury loses by subsidizing home ownership. One way to do that is to reduce the mortgage interest tax deduction and replace it with a tax credit.

Ray Garcia and his wife, Yishane, are aware cutting the deduction could hurt their bottom line.

"We'd definitely be bummed to lose it, because it's a big chunk of money," says Yishane Lee.

The New Jersey couple's monthly mortgage payment is $3,455, with more than half going to interest. Now they are eligible for a $22,000 deduction. In their current tax bracket that yields $6,205.

The National Commission on Fiscal Responsibility and Reform proposes to change the mortgage interest deduction, which saves home owners a total of $80 billion every year in taxes.

The commission would replace the deduction with a 12 percent "mortgage interest credit" for all home owners. That's less than the average 17 percent credit homeowners currently claim and would increase federal revenue around $300 billion over 10 years.

For the Garcias the change would reduce the tax savings on their home by $3,500.

The Choice: Whether to modify the mortgage interest deduction at all. Some advocate eliminating it entirely.

"If you bought a house and you can afford to pay your mortgage because of the deductions the government just can't get rid of it," says director of Citizens for Tax Justice Bob McIntyre. "I mean that would put you in a pickle."

Which is why if the government did phase out the deduction, it would probably do so over 10 or 20 years.

"That would give housing prices time to correct, time to adjust for the new reality, and if you did that, you could bring marginal tax rates down," says tax policy director of Americans for Tax Reform Ryan Ellis.

The deficit commission also proposes limiting your mortgage interest deduction to one house and cutting the amount of mortgage eligible from $1 million to $500,000. That would raise another $41 billion dollars over 10 years.

Until Washington makes a tough choice it is life as usual for the Garcia family as they break in their new home. "To live your life according to what's going on in Washington is kind of crazy," says Yishane Lee.

"I make sure that I can pay my monthly mortgage regardless of the deduction," says Garcia.

[twells7297]

Great, everyone that managed to NOT add to the forclosure mess is now going to be screwed. Basically, yet again the employed taxpayer gets it up the backside. How about automatically taxing the welfare payments that we pay for. How about having Congress receive the same benefits a State worker gets. How about TERM LIMITS!

[brian_norwood]

Oh, but hey. As Congress figures out how to squeeze every last nickel out of the middle class, the top 2% can feel safe that they won't be affected whatsoever.

[superdem1]

I'm barely keeping my house - any politician who votes to abolish the mortgage interest deduction will NEVER get my vote. If you want to tax somebody, tax the churches. They are political institutions anyway, and they consume local police, fire, sewer and electrical services. Cut the military, stop invading foreign countries, stop sending the army, navy and marines all over the world. Close our military bases in Germany, France, Japan, and South Korea. But don't force middle class Americans out of their homes. I will NEVER vote for that.

[jwrht]

As a renter, why should I pay more tax just because you bought a house or two and can afford both and I can afford none. Talk about unfair. Where's my tax break! As a renter my rent includes the taxes my owners pays, but I don't get to take that tax break - they do. How is this fair? Please don't insult the renters!

[cherrybrown]

Don't get me started on the horror stories of being the owner of a rental property. You never make enough to cover your costs and more than often end up taking a loss. As a homeowner that rents out a house I have to pay taxes on the money my renter pays + pay all property taxes and special bonds etc. that are always hoisted onto homeowners. Being the owner of the rental is not all that and a bag of chips!

[jwrht]

All tax loopholes and special deductions should be scrapped until we are in the black fiscally. WE should eliminate all the Bush tax cuts. If congress and the senate cannot do this them they are lying whwen they tellu how severe our fiscal debt is. If the debt is real then the remedies mentioned afore are the way to go. If the Congress balks and allowes the Bush tax cuts to continue, then they are either lying about the ominous nature of the deficit or they are lying about wanting to actually do anything reasonable about it.

[wyodutch]

Meanwhile... as the government schemes to find ways to put the squeeze on what's left of the Middle Class... the Wall Street pin-stripers are licking their lips in anticipation of bonus time.
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The top five Wall Street firms have put aside nearly $90 billion for total pay this year, and they are expected to raise that amount using their end of year earnings. That would make 2010 year one of the best ever for bank pay.
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Some "compensation consultants" have been helping their banking clients devise new labels for the pay that are less likely to inflame the public. For instance, some banks are considering reducing the amount of their payouts that are labeled as bonuses, and instead shifting some to other categories like "long-term incentives."
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[jeff-fla]

We need to give the top 2 percent a tax break. We can make up for the lost income by putting it on home owners. Be sure and vote republican come next election.

[wyodutch]

How about a halt to our wars of occupation against Iraq and Afghanistan? That would save $144,000,000,000 annually. A princely sum by any measure.
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Why not eliminate the 501(c)(3) tax loophole that allows people to deduct contributions to charity? Why should the taxpayers fund your donations?
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Impose a "retained earnings tax" on charities at a 50% rate for any monies they took in during the year but were not spent on charitable activities by December 31st? That would eliminate another huge loophole.
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Lots of fat to cut.

[jwrht]

I agree to all your ideas. I give to charity but because it equals my status deduction it cancels itself out. I would give either way but I agree if our debt is as severe as they say then all tax deductions should be scrapped and the Bush tax cuts eliminated for all.

[payasyougo]

Eliminate all tax breaks. Every one of them.

If you need someone else to support your lifestyle, cosign a credit card w/ your grandchildren, max the cards out and then die leaving your grandchildren to pay off the balance.

It's the same thing.

[aheadace]

When in the world are the American people going to wake up an make the politician's accountable. They want the working class to pay all the bills while they want to give the richest people more tax breaks on there money. Hey look at Warren Buffett he will tell you his secretary pays more taxes than he does THIS MUST STOP ( NO TAX BREAKS ) in 2001 Bush set the standard for bank-rumping this country by giving the wealthy more of there money back. WAKE UP PEOPLE KICK THESE PEOPLE TO THE CURB ((((((((( NOW ))))))))).